What is a true sale?
A true sale provides the issuer’s creditors with assurances that in the event the company defaults or becomes bankrupt or insolvent its creditors will not have access to the assets sold to the issuer. Conversely, the company achieves present value monetization of future cash streams and optimal cost of funds for its financing needs.
What is a true sale factor?
Probably the most important true sale factor is the absence of recourse by the transferee to the transferor for non-payment of the transferred asset.
What is a “true sale of accounts receivable?
Factoring and “True Sale”: Background In a nutshell, a true sale of accounts receivable is a sale that is not subject to recharacterization as a secured loan. That’s simple enough, but getting one’s hands around just exactly why a sale is a “true sale” (and thus not subject to recharacterization) is not as simple.
How do Accountants determine whether a transfer is a true sale?
Because true sale is a legal concept, accountants do not play a direct role in assessing whether a transfer is a true sale. However, their role in the sale process deserves a brief discussion since accounting principles determine whether a transfer of financial assets (including accounts receivable) will be accounted for as a sale.
What does a true sale mean?
True Sale means the sale for all purposes of absolute ownership of a Receivable, with the Borrower retaining no residual rights, title, interest or control (whether legal, equitable or beneficial) therein, and with all of the Borrower's rights, title and ownership interests being fully transferred to and vesting in ...
What is a true sale legal opinion?
As stated in ASC 860-10-55-18A(a), in the context of US bankruptcy laws, "a true sale opinion is an attorney's conclusion that the transferred financial assets have been sold and are beyond the reach of the transferor's creditors and that a court would conclude that the transferred financial assets would not be ...
How do you calculate true sales?
Generally, to determine whether a transaction is a true sale or a pledge of assets securing a loan, most courts purport to look to applicable state law. Although courts often note the importance of applicable state law, courts have developed and apply a multi-factor test as a matter of federal common law.
What is true sale factoring?
II. Factoring and “True Sale”: Background. In a nutshell, a true sale of accounts receivable is a sale that is not subject to recharacterization as a secured loan.
Is a loan participation a true sale?
Participation agreements, in the form promulgated by The Loan Syndications and Trading Association, Inc. (LSTA), are widely regarded as dependable vehicles for conveying loan ownership interests from a lender to a participant as “true sales” in the United States.
What is a sale opinion?
True Sale Opinion . An Opinion of Counsel to the Seller opining that the subject transaction constitutes a “true sale”.
What is true non recourse factoring?
True non-recourse factoring involves a true sale of the receivable. The factoring company, who assumes all responsibility for collection and all liability should the debtor not pay for any reason (excluding dispute). The receivable is removed from your balance sheet and cash is added as an asset.
What is a future receivables sales agreement?
A purchase of receivables agreement (PORA) is not a loan. It's a financing agreement where we purchase a percentage of your future revenue. In exchange, you receive a lump sum of funds. Think of it as a cash advance on your business's future revenue.
Is factoring a security?
The factoring agreement will provide for your company to grant the factor a lien on some or all of your company's personal-property assets as security for the obligations your company owes to the factor.
Is a true sale a legal issue?
True sale is not only a legal issue , but will have important implications for determining whether or not a transaction can be classified as “off-balance sheet” financing under applicable accounting rules.
Is there a legal test to determine if a transaction amounts to a true sale of receiv
Unfortunately, there is no one legal test by which it is possible to determine conclusively whether a transaction amounts to a true sale of receivables, rather than a secured loan.
What is the true sale doctrine?
The true-sale doctrine determines the status of securitized assets: it is the state-law doctrine that distinguishes sales from loans. When companies assign large pools of receivables to a special-purpose entity in order to raise capital, the true-sale doctrine governs characterization of the assignment, and therefore whether creditors can reach such assets in bankruptcy. Despite the fact that the true-sale doctrine governs transactions that are central to the multi-trillion-dollar securitization market, the doctrine is inconsistent, lacks normative direction, and is under-theorized. 1#N#1. See Heather Hughes, Property and the True-Sale Doctrine, 19 U. Pa. J. Bus. L. 870 (2017) (hereinafter Hughes, Property ); Robert D. Aicher & William J. Fellerhoff, Characterization of a Transfer of Receivables as a Sale or a Secured Loan Upon Bankruptcy of the Transferor, 65 Am. Bankr. L.J. 181, 186-98 (1991); Steven L. Harris & Charles W. Mooney, Jr., When Is a Dog’s Tail Not a Leg?: A Property-Based Methodology for Distinguishing Sales of Receivables from Security Interests That Secure an Obligation, 82 U. Cin. L. Rev. 1029 (2014); Peter V. Pantaleo et al., Rethinking the Role of Recourse in the Sale of Financial Assets, 52 Bus. Law. 159, 161 (1996).#N#This Essay argues that lawmakers should formulate state, statutory true-sale rules and that such rules should establish the relevance of price in true-sale analyses. 2#N#2. This Essay is not the first call to clarify and codify the true-sale doctrine. Edwin E. Smith proposed a drafting committee to formulate true-sale rules in 2001. See Edwin E. Smith, Proposal for a Uniform State Law on What Constitutes a True Sale of a Right to Payment (Confidential Discussion Draft in Process, 2002) (on file with author). Steven L. Harris and Charles W. Mooney, Jr. published an article in 2014 calling for true-sale rules that mirror the uniform commercial code true-lease provisions. See Harris & Mooney, supra note 1. These existing proposals have not yielded model provisions or other codified reform. This Essay, along with Property and the True-Sale Doctrine, builds upon and departs from these prior proposals. It joins them in calling for coherent true-sale rules. It builds upon the notion that true-sale rules should look to economic substance of a transaction and should be explicitly property-based. It departs from prior efforts in that it (i) overtly links the doctrine to the literature on the efficiency and fairness of securitization, and (ii) focuses on the relevance of price terms and the property concept of rights of exclusion, considering when and why companies should exclude unsecured creditors from securitized assets. (The minority of states that enact asset-backed securities facilitation acts, of course, do have statutory true-sale rules, albeit very different ones from what this Essay, or Smith, or Harris and Mooney would propose. See infra text accompanying notes 27, 35; Hughes, supra note 1, at 905-910.).
What is true sale in the ABS market?
November 8, 2019. The true-sale doctrine is central to the multi-trillion dollar asset-backed securities (ABS) market. The assets backing ABS are only bankruptcy-remote if they were assigned in a true sale, rather than as collateral for a loan, and it is the true-sale doctrine that distinguishes sales from loans.
What is a true sale of accounts receivable?
In a nutshell, a true sale of accounts receivable is a sale that is not subject to recharacterization as a secured loan. That’s simple enough, but getting one’s hands around just exactly why a sale is a “true sale” (and thus not subject to recharacterization) is not as simple.
What is the intention of a transaction?
Intent. The parties’ intention to accomplish a true sale, rather than a loan, must be expressed in the transaction documents and otherwise, including in communications between the parties and in each party’s records. The substance – rather than the form – of the transaction is what is important.
Is there a bright line test for determining if a transaction is a true sale?
Case law on true sale in factoring transactions is spotty and, like case law on the issue of true sales of financial assets generally, provides no bright line tests for determining whether a transaction is a true sale.
